1. On January 1, 2010, Ameen Company purchased a building for $36 million. Ameen
ID: 2583561 • Letter: 1
Question
1. On January 1, 2010, Ameen Company purchased a building for $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2012, the carrying value of the building was $30 million and its tax basis was $20 million. At December 31, 2013, the carrying value of the building was $28 million and its tax basis was $13 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2013 was $45 million Required: a) Prepare the appropriate journal entry to record Ameen's 2013 income taxes (current income tax expense and deferred income tax expense). Assume an income tax rate of 40% b) What is Ameen's 2013 net income? 2. For the year ended December 31, 2013, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2013 from Fidelity's records follows Interest income on municipal bonds Depreciation daimed on the 2013 tax retun in excess of depreciation on the income statement Carrying amount of depreciable assets in excess of their tax basis at year-end Warranty expense reported on the icome statement Actual warranty expenditures in 2013 $32,000 55,000 85,000 26,000 16,000 Fidelity's income tax rate is 40%. At January 1, 2013, Fidelity's records indicated balances of zero and $12,000 in its deferred tax asset and deferred tax liability accounts respectively Required: a) Determine the amounts necessary to record income taxes for 2013 and prepare the appropriate journal entry b) What is Fidelity's 2013 net income? 3. The information that follows pertains to Esther Food Products At December 31,2013, temporary differences were associated with the following future taxable (deductible) amounts Depreciation Prepaid expenses Warranty expenses No temporary differences existed at the beginning of 2013 Pretax accounting income was $80,000 and taxable income was $15,000 for the year ended December 31,2013. The tax rate is 40% Required: $60,000 17,000 (12,000)Explanation / Answer
2016
Future taxable amount
Pre tax accounting income
45
Temporary difference:
Depreciation
-5
15
(30-20)-(28-13)
(28-13)
Taxable income
40
Tax rate
40%
40%
Current year tax paid
16
Deferred tax liability
6
(15*40%)
Ending Balance
6
Less: Beginning balance
-4
(30-20)*40%
Change needed to achieve desired balance
2
1
General journal
Debit
Credit
Income tax expense
18
Deferred tax liability
2
Income tax payable
16
2. what is Ameen net income?
27million
2
$
Pretax Income
45
Income tax expense
-18
Net income
27
2016
Future taxable amount
Pre tax accounting income
45
Temporary difference:
Depreciation
-5
15
(30-20)-(28-13)
(28-13)
Taxable income
40
Tax rate
40%
40%
Current year tax paid
16
Deferred tax liability
6
(15*40%)
Ending Balance
6
Less: Beginning balance
-4
(30-20)*40%
Change needed to achieve desired balance
2
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